The Conservatives shouldn't imperil the economy with political positioning

Mar 22 2009

On the ConservativeHome blog Tim Montgomerie writes that the Conservatives understand scrapping their proposed Inheritance Tax Cut and endorsing Labour's new top rate of tax won't raise much revenue. That's good news and absolutely correct. The Inheritance Tax only raises a small proportion of total revenue, less than one per cent, but rouses huge public ire thanks to the pernicious effects it can have by, for example, forcing the sale of family homes. Equally, the Centre for Economics and Business Research have found (PDF) that the revenue from the new top rate will be negligible.

Unfortunately, they want to go ahead with those changes anyway in order to send the political signal that they aren't the "party of the rich".

The problem is that, in sending that signal, the opposition will also send other signals to audiences they don't intend to reach. They'll send the signal that, in Britain's attempts to wrestle with record public sector deficits, the Government will treat the wealthy as targets. That will shift the balance between risk and reward for every potential entrepreneur wondering how much they'll be left with if their business works out. If entrepreneurs think that the Government will seize too much of the fruits of their success then they might well conclude that starting a new business isn't worth the risk. That calculation isn't just about tax rates right now but about a perception of whether our political culture values entrepreneurs creating jobs and prosperity more than it does the satisfaction of taking shots at the rich. The same goes for multinational companies working out where they can invest without their employees incomes being absorbed by high tax rates.

At the TaxPayers' Alliance, our first priority is always the direct interests of ordinary taxpayers. That's why we've put more effort into campaigning on council tax, which hits the poor and vulnerable elderly people on fixed incomes hardest, than any other tax. We aren't, though, going to get into the destructive and divisive game of pretending that hurting the interests of the rich automatically makes you more a friend of ordinary people. You don't help ordinary people by reducing the number of jobs being created by entrepreneurs or international investment in Britain. Addressing their personal concerns is a better way of winning people over than sending signals by attacking someone else.

Cuts in wasteful public expenditure can make room for reducing the long term tax burden, whether by cutting taxes or paying down the debt that will mean higher bills in the future. Our report The Great British TaxPayer Rip-Off (PDF) showed how taxes have gone up 51%, even after adjusting for CPI inflation, charges for services are up massively and many services have been cut. That has all gone to feed waste in government and the public services. If all that increase in the burden on taxpayers has left us with the nightmare public finances we're facing today, do we really think that increasing the tax burden can be the route to sustainable public finances?

The Conservatives should focus on addressing the priorities of ordinary people, trying to make them better off now and in the future, rather than attacking the rich in a misguided attempt at political positioning. That could leave us all facing a bleaker future.

On the ConservativeHome blog Tim Montgomerie writes that the Conservatives understand scrapping their proposed Inheritance Tax Cut and endorsing Labour's new top rate of tax won't raise much revenue. That's good news and absolutely correct. The Inheritance Tax only raises a small proportion of total revenue, less than one per cent, but rouses huge public ire thanks to the pernicious effects it can have by, for example, forcing the sale of family homes. Equally, the Centre for Economics and Business Research have found (PDF) that the revenue from the new top rate will be negligible.

Unfortunately, they want to go ahead with those changes anyway in order to send the political signal that they aren't the "party of the rich".

The problem is that, in sending that signal, the opposition will also send other signals to audiences they don't intend to reach. They'll send the signal that, in Britain's attempts to wrestle with record public sector deficits, the Government will treat the wealthy as targets. That will shift the balance between risk and reward for every potential entrepreneur wondering how much they'll be left with if their business works out. If entrepreneurs think that the Government will seize too much of the fruits of their success then they might well conclude that starting a new business isn't worth the risk. That calculation isn't just about tax rates right now but about a perception of whether our political culture values entrepreneurs creating jobs and prosperity more than it does the satisfaction of taking shots at the rich. The same goes for multinational companies working out where they can invest without their employees incomes being absorbed by high tax rates.

At the TaxPayers' Alliance, our first priority is always the direct interests of ordinary taxpayers. That's why we've put more effort into campaigning on council tax, which hits the poor and vulnerable elderly people on fixed incomes hardest, than any other tax. We aren't, though, going to get into the destructive and divisive game of pretending that hurting the interests of the rich automatically makes you more a friend of ordinary people. You don't help ordinary people by reducing the number of jobs being created by entrepreneurs or international investment in Britain. Addressing their personal concerns is a better way of winning people over than sending signals by attacking someone else.

Cuts in wasteful public expenditure can make room for reducing the long term tax burden, whether by cutting taxes or paying down the debt that will mean higher bills in the future. Our report The Great British TaxPayer Rip-Off (PDF) showed how taxes have gone up 51%, even after adjusting for CPI inflation, charges for services are up massively and many services have been cut. That has all gone to feed waste in government and the public services. If all that increase in the burden on taxpayers has left us with the nightmare public finances we're facing today, do we really think that increasing the tax burden can be the route to sustainable public finances?

The Conservatives should focus on addressing the priorities of ordinary people, trying to make them better off now and in the future, rather than attacking the rich in a misguided attempt at political positioning. That could leave us all facing a bleaker future.